Global investment market review: January 2026 – performance & highlights

The MSCI ACWI Index, a representative measure of global equities across developed and emerging markets, rose 0.9% over the month in sterling terms and 2.5% in local currency terms. Asia Pacific and emerging markets were among the strongest regions. Japan and the UK also performed robustly, and while the US advanced in local currency terms it underperformed global benchmarks. As in the fourth quarter of 2025, value sectors continued to outperform growth during January. Geopolitics and tariffs were two key factors that influenced financial markets, amid worries about the future of Greenland and threats of new US tariffs, US intervention in Venezuela and unrest in Iran. In fixed income, the ICE BofA Global Government Index fell 1.2% in sterling terms but was flat in local terms. Sterling gained ground against the US dollar.

Crude oil futures prices bounced as concern grew about rising tension between the US and Iran, events in Venezuela and additional US restrictions on Russian oil. European natural gas futures price spiked on relatively low European storage levels and expectations of colder conditions.

The FTSE 100 Index, a commonly used representative benchmark of the UK’s largest equities, added 3.0%. The FTSE All Share Index gained 3.1%, amid extra share price strength in mid- and small-cap stocks. The UK’s annual inflation accelerated to 3.4% in December after November’s reading of 3.2%. Meanwhile, unemployment stayed put at a five-year high of 5.1% in the three months to November. The flash UK manufacturing Purchasing Managers’ Index (PMI) expanded and improved on the previous month, helped by growth in output and new exports. The UK services sector PMI also saw stronger expansion.

In US equities, the S&P 500 Index dropped 0.6% in sterling terms but rose 1.4% in US-dollar terms and hit new highs just before month-end. The Nasdaq Composite Index, which has a growth focus, was down 1.0% in sterling terms but up 1.0% in dollar terms. Geopolitical worries and US tariff threats were the backdrop for the country’s equities which underperformed major regional markets globally. The US President’s nomination for the next Federal Reserve (Fed) governor was announced as Kevin Warsh. If he assumes office, Warsh’s policy actions will be scrutinised by investors focused on the future independence of the Fed.

Meanwhile, the Fed held interest rates steady in January, following two reductions during the fourth quarter. Two members of the Fed’s policymakers voted for a further cut. The Fed highlighted solid economic growth and slightly elevated inflation and the need for cautious consideration of new economic data from here. Annual inflation remained at 2.7% in December. The non-farm payrolls report saw an extra 50K jobs added in December, compared with the 60K consensus expectation, with hires chiefly in the food services and health care segments. However, unemployment reduced slightly, from 4.5% to 4.4%. The preliminary reading of the US manufacturing PMI for December expanded but was little changed from the previous month. The early services PMI reading was unchanged between January and December.

There was step up of 2.2% in the MSCI Europe ex UK Index in sterling terms. The Netherlands and Spain led returns at the country level, while Germany, Switzerland and France trailed. Europe’s shares recovered from mid-month worries about Greenland and further US tariffs to finish higher on solid earnings releases and economic data. Eurozone flash fourth-quarter GDP (gross domestic product) growth came in at 0.3% quarter-on-quarter (q/q), which matched the level in the previous quarter. The trading bloc’s overall GDP was somewhat bolstered by a pickup in Germany’s GDP growth, which matched the 0.3% pace. Unemployment in the Eurozone decreased to a new low of 6.2%. Annual inflation slowed below the European Central Bank’s target level, as services inflation and energy prices softened. Flash eurozone manufacturing PMI remained in contraction in January. The preliminary services PMI for December decreased on the previous month but remained in expansionary territory.

As in the fourth quarter of 2025, value sectors continued to outperform growth during January.

The MSCI Japan Index gained 4.5% in sterling terms. Tailwinds for Japan’s equities came from hopes around the recent announcement of a stimulus package and ongoing corporate governance reforms. Additionally, AI-related stocks performed well. In politics, a snap election was called by the new Prime Minister, Sanae Takaichi. Annual inflation slowed from 2.9% in November to 2.1% in December, as price rises softened in food, clothing and transport. The Bank of Japan (BoJ) kept its benchmark interest rate at 0.75% in January, following December’s hike, while flagging rates may rise further if the economy continues to make the progress it expects. The yen strengthened sharply against the US dollar in January but started to slip at month-end, ahead of February’s national election.

The MSCI Emerging Markets Index increased 6.7% in sterling terms and 8.8% in local terms, strongly outpacing developed markets. The weakening US dollar and strength in shares expected to benefit from AI helped lead emerging markets higher. Korea, Brazil, Taiwan and Saudi Arabi made the strongest gains and China moved robustly higher, while India fell back in local currency terms. South Korea’s quarter-on-quarter (q/q) GDP contracted by 0.3% in the fourth quarter of 2025, compared with the previous level 1.3% growth. In part this was due to softer domestic demand. Despite this the country’s main equity market reached new record highs over the month, as the rally broadened out from being dominated by technology-related stocks.

The Bank of Korea kept its interest rate at 2.5% as it continued to monitor the current global and local backdrop. Brazil’s central bank kept rates on hold in January as it looks to keep inflation progressing towards its target level. Meanwhile, the country’s labour market continued to improve, with unemployment reaching 5.1% in December, down from 5.2% in November. India’s market weakness was driven by several factors, including foreign investor flows and poor earnings from one of the country’s largest conglomerates. India’s annual inflation bounced for the second month in succession, to reach 1.33%, but it remained below the RBI’s inflation lower-threshold target of 2%.

Over the month, the MSCI AC Pacific ex Japan Index added 8.2% in sterling terms. At the country level, Korea, and Taiwan gained ground, while India declined in local terms. China’s economy grew 4.5% y/y in the fourth quarter, marginally above market consensus but lower than the 4.8% y/y growth in the third quarter, in part due to ongoing weakness in the real estate sector. Yet, Chinese industrial production stepped up from 4.8% y/y in November to 5.2% y/y in December, helped by an improvement in manufacturing activity. Exports also rose from 5.9% in November to hit a better-than-expected 6.6% y/y expansion in December, helped by trade to non-US markets. Bank Indonesia held rates steady in January in the face of relative weakness in the rupiah. Australia’s unemployment rate dipped to 4.1% in December, from 4.3% in November. The country’s inflation rate rose to 3.8% in December, a bounce from Novembers 3.4%.

Tailwinds for Japan’s equities came from hopes around the recent announcement of a stimulus package and ongoing corporate governance reforms.

Fixed income markets had a mixed showing, with government bonds falling in sterling terms but coming in flat in local terms. Spreads in high yield and investment grade corporate bonds narrowed further. The 10-year US Treasury yield moved from 4.15% at the start of the month to 4.24% at month-end as economic data was interpreted as relatively robust. The UK’s 10-year gilt yield rose modestly following a rebound from a sharp fall (prices rose) in the first half of the month. In Germany, 10-year bund yields saw a similar but less-sharp decline in the first weeks of 2026 and finished broadly flat over the month. Japanese government bonds yields rose on the announcement of a snap election in February.

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), added 1.7% in sterling terms and 2.4% in local currency terms. Note that REITs tend to be sensitive to interest rate expectations. During the month to end-December – the latest period with available figures – the MSCI UK Monthly Property Index was up 0.6%. Last year appears to have been solid for retail amid a lacklustre economic backdrop. Data centres have been a relatively strong segment, and prime office space in London remain strong.

* All index data are shown in total return sterling.
Source: FE Analytic